The latest passage of the US GENIUS Act was broadly celebrated as a serious step ahead for stablecoin adoption, however a key provision could curb the enchantment of digital {dollars} in comparison with cash market funds, elevating questions on whether or not the invoice’s authors have been swayed by banking trade stress to limit yield-bearing stablecoins.
The GENIUS Act expressly bans issuers from providing yield-bearing stablecoins, successfully stopping each retail and institutional traders from incomes curiosity on their digital greenback holdings.
Due to this, Temujin Louie, CEO of crosschain interoperability protocol Wanchain, cautioned in opposition to viewing the laws as an unqualified win for the trade.
“In a vacuum, this can be true,” Louie informed Cointelegraph. “However by explicitly prohibiting stablecoin issuers from providing yield, the GENIUS Act really protects a serious benefit of cash market funds.”
As Cointelegraph reported, cash market funds, or MMFs, are rising as Wall Road’s reply to stablecoins, notably when issued in tokenized kind. JPMorgan strategist Teresa Ho famous that tokenized MMFs might unlock new use instances, similar to serving as margin collateral.
Louie agrees, claiming that “tokenization permits cash market funds to undertake the pace and suppleness that beforehand made stablecoins distinctive, with out sacrificing security and regulatory oversight.”
Paul Brody, world blockchain chief at EY, informed Cointelegraph that tokenized MMFs and tokenized deposits “might discover a vital new alternative onchain,” particularly within the absence of yield on stablecoin holdings.
“Cash market funds can function and look quite a bit like stablecoins to end-users, however with the distinction that they do provide yield,” Brody stated.
In line with EY’s Brody, the supply of yield could possibly be a deciding issue between tokenized MMFs and stablecoins. Nonetheless, he famous that stablecoins retain sure benefits:
“Stablecoins are allowed as bearer property, which implies they’ll simply be put into DeFi providers and different onchain monetary providers with out difficult administration of entry and switch controls. If tokenized cash market funds have many restrictions that forestall such utilization, it’s attainable the attraction of yield won’t be sufficient to offset the added operational problems.”
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The banking trade’s grip on the stablecoin debate
The GENIUS Act’s prohibition on yield-bearing stablecoins got here as little shock, with Cointelegraph beforehand reporting that the banking foyer seems to have exerted vital affect over the continuing coverage debate round stablecoins.
Again in Could, NYU professor and blockchain advisor Austin Campbell cited sources throughout the banking trade, revealing that monetary establishments are actively lobbying to dam interest-bearing stablecoins to guard their long-standing enterprise mannequin.
After many years of providing depositors minimal curiosity, banks feared their competitiveness could be threatened if stablecoin issuers have been allowed to supply yield on to holders, Campbell stated.
Nonetheless, yield-bearing digital property do exist within the US, albeit below the obvious purview of securities regulation. In February, the Securities and Alternate Fee accredited the nation’s first yield-bearing stablecoin safety, issued by Determine Markets. The token, referred to as YLDS, supplied a 3.85% yield at launch.
Associated: GENIUS units new stablecoin guidelines however stays obscure on international issuers
